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Abstract
We analyze determinants of hail insurance use of Swiss farmers, covering the period 1990-2009 using
FADN panel data. Mixed effect logistic regression models are estimated to identify the most important
farm and farmer characteristics that determine insurance use. In addition, information on local hail risk
is taken into account in these models. It shows that larger farms, with specialization on crop production,
and with larger local hail risks are more likely to adopt the hail insurance. Moreover, insurance users are
usually older and better educated. Since the early 1990s, Swiss agricultural policy has reduced price
support and introduced general and ecological direct payments. This has led to a much higher
importance of direct payments for farmers’ incomes. We find that this development has contributed to
decreasing hail adoption rates in Switzerland in the considered period, due to the insurance and wealth
effects of direct payments. Our results indicate that the larger the share of direct payments for total farm
revenue, the more subsidies would be required to induce hail insurance adoption. Thus, agricultural
policy should explicitly consider this interdependency.